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2017 (7) TMI 429 - HC - Income TaxTDS u/s 194I - TDS on rent to AAI - Held that - The Court is satisfied that in the present case, the payment made by the Assessee to AAI under the LA is rent within the meaning of Section 194-I of the Act. Question (i) in the quantum appeals is, therefore, answered in the negative, i.e., in favour of the Revenue and against the Assessee. Penalty under Section 271C - non tds deduction - Held that - The question whether in the present case the payment of royalty for the right to operate the executive lounge is in fact rent under Section 194-I of the Act, was a debateable issue. The fact that the LA termed this payment as royalty may have given rise to a reasonable doubt whether it should nevertheless to be treated as rent . The Court is of the view that in the circumstances, the Assessee can take advantage of the exemption provided under Section 273 B of the Act by contending that there were bonafide reasonable grounds for the Assessee not to have deducted tax at source from the payment made to AAI under the LA. This was not a case where the Assessee could be said to have deliberately avoided making payment of tax so as to attract penalty under Section 271 C of the Act. - Decided in favour of assessee.
Issues Involved:
1. Whether the amount paid by the Assessee to the Airport Authority of India (AAI) for the use of lounge premises is considered rent under Section 194-I of the Income Tax Act, 1961. 2. Whether interest under Section 201(1A) of the Act can be charged once the payee has paid the tax. 3. Whether the penalty under Section 271C of the Income Tax Act, 1961, should be deleted. Issue-wise Detailed Analysis: 1. Nature of Payment to AAI: The primary issue is whether the payment made by the Assessee to AAI for the use of lounge premises qualifies as rent under Section 194-I of the Income Tax Act. The Assessee argued that the payment was for royalty and not rent, as it was for the right to operate an executive lounge. However, the Court noted that the payment, although split into royalty and space fees, was essentially for the use of the lounge premises. The Court referenced the expanded definition of "rent" under Section 194-I, which includes any payment for the use of any building under any agreement or arrangement. Citing previous judgments, the Court emphasized that the term "rent" should be interpreted broadly. The Court concluded that the payment made by the Assessee to AAI fell within the ambit of "rent" under Section 194-I, thus the Assessee was required to deduct tax at source. 2. Interest under Section 201(1A): The second issue was whether interest under Section 201(1A) could be charged once the payee had paid the tax. The Court referred to the Supreme Court's decision in Hindustan Coca Cola Beverage (P) Limited v. Commissioner of Income Tax, which clarified that while no demand should be enforced if the deductee has paid the taxes, the liability to charge interest under Section 201(1A) remains until the date of tax payment by the deductee. The Court directed the Assessing Officer (AO) to compute the interest liability in accordance with this principle and the CBDT circular dated 29th January 1997. 3. Deletion of Penalty under Section 271C: The third issue concerned the deletion of the penalty under Section 271C. The Court found merit in the Assessee's contention that the issue of whether the payment was rent or royalty was debatable. Given that the License Agreement (LA) termed the payment as royalty, there was a reasonable doubt about its classification. The Court held that the Assessee had bona fide and reasonable grounds for not deducting tax at source, thus qualifying for exemption under Section 273B. The Court upheld the ITAT's decision to delete the penalty, as it was not a case of deliberate tax avoidance. Conclusion: The Court disposed of the appeals by ruling in favor of the Revenue on the issue of the nature of payment, holding it to be rent under Section 194-I. However, it directed the AO to compute interest liability in line with the Supreme Court's decision and CBDT circular. On the penalty issue, the Court ruled in favor of the Assessee, affirming the deletion of the penalty under Section 271C.
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